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The Effect of Exchange Rate Uncertainty on US Imports from the UK: Consistent OLS Estimation with Volatility Measured by An ARCH-type Model

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  • Jan M. Podivinsky
  • Chongcheul Cheong
  • Maozu Lu

Abstract

This paper investigates the effect of exchange rate volatility on US-UK bilateral trade flows. As part of econometric problems arising from a generated variable, we consider a special case when an ARCH type auxiliary model is used to measure uncertainty in the exchange rate and discuss a procedure for the correct inference of the OLS estimates of the primary equation in the second stage, which includes the generated variable. By applying this two-step approach, we find a statistically significant, negative impact of exchange rate uncertainty on US imports from the United Kin

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 212.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:212

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Keywords: ARCH model; Consistent estimation; Generated regressors; Volatility;

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